Sunday, May 4, 2014

Don’t Let Investors Conclude Your Startup Is A Hobby

formal-business-processesEven when your startup is a one-man show and lots of fun, a “business” needs some discipline and controls to keep it from being defined as a hobby by investors, and assure some financial return. Like it or not, you are now entering the dreaded realm of specifying and documenting “formal business processes.” The right question is “What is the minimum that I need?”

The simple answer is that you need to implement one process at a time, starting with those things that are most critical to your business, until you feel a relief that things are starting to happen naturally and consistently, without the attendant stress and continual recovery mode. If you feel that the process itself is a burden, you have likely gone too far.

Here are eight key business tasks that relate to almost every startup, generally prioritized by criticality. Think about the implications of each to your own business, and the potential impact of getting them done incorrectly, or forgetting to do them entirely:

  1. Manage your financials and physical assets. I’m continually amazed at the number of entrepreneurs who go for months into a new business without really keeping a formal record of money spent or assets acquired. Use a simple accounting tool like QuickBooks, get away from co-mingled funds, and you have the first business process you need.

  2. Develop your business plan. Write down the key elements of your business plan very early, and keep it current as things evolve. This will include the first version of many critical processes that can be split out later, including market opportunity, requirements, product definition, business model, sales process, and organization.

  3. Product development process. Even if you are doing the work yourself, you need to document requirements, features, metrics, and milestones. If you are contracting or outsourcing, this is even more important. Otherwise you will find yourself a year later being no closer to a product that you were yesterday, with no idea why.

  4. Funding process. Unless you are bootstrapping everything, you need to have a clear plan on what networking and documents are required to get to friends and family, Angel investors, and institutional investors. Measure yourself against a researched plan, or your “out of cash” brick wall will be looming before you know it.

  5. Manage human resources. At this stage, you should start recruiting, hiring, paying, and training others to help you run your business. In addition to effectiveness and consistency, you now have a myriad of legal and tax considerations to get right. Don’t try this without a formal process.

  6. Leverage information technology. Find an IT person you can trust, and plan how you will acquire, implement, and utilize computer technology to run your business. How do you access the Internet, what servers do you need, applications required, databases designed, and backups scheduled? It all has to be written down and maintained.

  7. Billing and revenue collection. Whether you provide an online subscription service, or sell products in a store, you need to consistently and economically sell your product and collect revenue to survive. Here you will likely need to train others to help you, so more detail may be required in this process.

  8. Customer service and support. Here is another often overlooked area of process that kills many startups, both in cost and time. Don’t assume that you can fix every problem yourself, or that there won’t be any problems to fix. Even if your business is online, people want a contact, real expertise, and quick response.

If you are a great startup, you won’t just copy the processes of your competitors, even in these basic elements. Innovation is the key, to keep each process small, but make it more effective than competitors and big-company processes.

But having no process does not make you more competitive. In my experience, no process means a business “out of control,” or simply a hobby masquerading as a business. Neither of these is really much fun, and both situations will cost you money rather than make money. Even the government is watching to see where you fit.

Marty Zwilling


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